May 5, 2013 in Business

If you’re looking for e-commerce leader, eBay deserves attention

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Associated Press photo

Ebay’s revenue rose 14 percent and net income 19 percent, year over year, in its last quarter.
(Full-size photo)

Amazon (Nasdaq: AMZN) is a great business, but its stock is usually priced for perfection. Thus, one or more bad moves could hit it hard. So perhaps consider eBay (Nasdaq: EBAY), instead. It’s another fast-growing e-commerce company, with a better price.

EBay’s revenue rose 14 percent and net income 19 percent, year over year, in its last quarter. Key for eBay is its PayPal business, a leading online payment standard that made up 40 percent of 2012 revenue. Over the past five years, PayPal’s payment volume has grown about 24 percent per year. The trend should continue as developing countries grow their ranks of Internet users.

Another unique opportunity for eBay is its aggressive pursuit of merchant partnerships, opening doors for faster expansion in the many countries that often limit foreign e-commerce. EBay’s recent investment in India’s Snapdeal.com, for instance, offers access to India’s fast-growing e-commerce segment. Market potential is enormous, though the payoff may be years away.

Snapdeal’s CEO, Kunal Bahl, says purchases via smartphone are on pace to double in 18 months.

Though Amazon’s significant lead in e-commerce could make its future more certain than eBay’s, eBay offers benefits that seem underappreciated by the market. (The Motley Fool owns shares of eBay and Amazon, and its newsletters have recommended both.)

Ask the Fool

Q: What’s a “full position” in a stock? – P.J., Flagstaff, Ariz.

A: Imagine that you want to invest $2,000 in Dodgeball Supply Co. (ticker: WHAPP). If you don’t have much money at the moment, or if you think the stock has a decent chance of falling soon, you might buy just $1,000 worth right now and plan to add $1,000 later.

That $1,000 would represent a half position in the stock. Once you owned the $2,000 worth that you wanted, you’d have a full position. A full position varies by person. It’s the size of the investment you aim to have in a security.

My dumbest investment

In 1993 I took early retirement and rolled over my savings into three mutual funds. My financial adviser ended up leaving the state due to some dispute, so I went with a new broker who put me into 15 technology mutual funds. At first all was great, and my retirement money grew to $850,000 by 2000. But then the Internet bubble burst and I was losing $100,000 per month. My broker said to hang on, but I bailed out at $450,000. Of course, the three original funds were great performers during this period! – H.D., Richardson, Texas

The Fool responds: Before the bubble burst, many tech-heavy companies were sporting sky-high valuations, which looked risky to level-headed, risk-averse investors. But many bet on continued growth and ended up burned. Still, once the stocks crashed, those with shaky business models were best sold, but more solid companies were worth holding, as they eventually recovered.

It’s best to have a good handle on why you’re invested in your various holdings – and on how risky they are, too. Examine a fund’s holdings, for example, along with its fees, performance and valuation.

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